Business spending plans gauge rebounds

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Reuters

WASHINGTON - A gauge of planned U.S. business spending increased by the most in five months in October, but a fourth straight month of declines in shipments underscored the damage that fears of tighter fiscal policy next year are inflicting on the economy.

The Commerce Department said on Tuesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rebounded 1.7 percent last month after falling 0.4 percent the prior month.

Economists had expected so-called core capital goods orders to fall 0.5 percent.

Shipments of non-defense capital goods orders excluding aircraft, used to calculate equipment and software spending in the gross domestic product report, slipped 0.4 percent. It was the fourth straight month of declines in shipments.

The Commerce Department said there was no indication that superstorm Sandy, which lashed the East Coast in late October, had an immediate impact on factories in that region.

Businesses are cutting back on capital spending, wary of automatic government spending cuts and tax increases, known as the fiscal cliff, that are scheduled to kick in early next year unless the U.S. Congress and the Obama administration can agree on a plan to cut the budget deficits.

The fiscal cliff could drain about $600 billion from an already fragile economy. Business spending is also being undermined by the long-running debt problems in Europe and slowing global demand, especially in China.

Despite the headwinds, the manufacturing sector continues to grow, though modestly. Durable goods orders were unchanged in October as gains in machinery, fabricated metal products, and computer and electronic products offset the drag from automobiles, defense and civilian aircraft.

Economists polled by Reuters had forecast orders for durable goods, items from toasters to aircraft that are meant to last at least three years, falling 0.6 percent last month after rising 9.2 percent in September.

Excluding transportation, orders rose 1.5 percent after increasing 1.7 percent in September.